Amazon Surprising 2Q Earnings

“A very good cost quarter,” is the way Amazon.com Inc CFO Brian Olsavsky conservatively described Amazon’s Q2 2015 results. Operating cash flow increased 69% to $8.98 billion for the preceding twelve months, compared with $5.33 billion for the same period last year.

Investors reacted less conservatively with shares surging more than 17% to $566 within hours of the announced result. In the past Amazon’s been known for sacrificing short-term profit, preferring to spend its money on long-term investment. Wall Street was bracing for a loss of 14 cents per share with only $22.39 billion in revenue — so results that put the company narrowly in the black understandably surprised the market.

Net sales also increased 20% to $23.18 billion in the second quarter, compared with $19.34 billion in Q2 2014. Net sales increased 27% compared to Q2 2014.

Some factors which impacted the results were Amazon’s increased deployment of automation in its warehouses to reduce costs, the Prime Day online sale (where customers purchased 34.4 million items reportedly at a rate of 398 products per second), and a sales increase of 81% to 1.82 billion of Amazon Web Services (AWS) which supplies cloud computing.

Contrast this to other companies’ recent Q2 reports and the results are even more staggering. Apple posted Q2 revenue of $58 billion and quarterly net profit of $13.6 billion reflecting 27% revenue growth. Microsoft’s Q2 revenue was $26.5 billion and shares dropped 4% mostly due to Windows OEM revenue — the amount of income Microsoft gets from selling software on new retail PCs — being down 13% from last year.

Amazon CEO Jeff Bezos has now taken Amazon to a company that’s bigger (by capitalization) than Walmart. Impressive for a business that only a year ago reported a loss of $126 million and ever-shrinking margins. Bezos is well known for taking a long-term view of the market and his attention to business detail, and Amazon has certainly been working on those details. Olsavsky commented that there is “certainly” a connection between Amazon’s past investment, faster delivery times, same-day delivery services (Prime Now), and revenue today.

The impact of growth in AWS cannot be overlooked. Bezos has referred to AWS as a “$5 billion business.” The 2015 Q2 results put AWS with a run rate greater than $7 billion — well ahead of its target. In comparison, Microsoft’s run rate for their longer-established cloud business reported was $8 billion for the same period.

A good result for Amazon also means a good year for Bezo personally with his net worth increasing by $8 billion as the 2Q result came out. By way of contrast, Google owner Sergy Brin and Larry Page’s net worth surged by $4 billion each last week when their 2Q result came out and market capital increased by $60 billion.

Amazon’s now seen as a growth company. Even the workforce is predicted to increase (Amazon has over 4,600 open positions just in its Seattle headquarters). There are new services on the horizon such as the production of the original film, video content for its subscription streaming service Prime. Investors will be eagerly awaiting Q3 results to see if the growth in revenue continues.